American Grain Corporation

Résumé du document

American Grain Corporation: When shareholders are about to invest in project, they need to know what the financial consequences of it are. They need to plan the expenses and the possibilities of return on investment, regarding how long it will take to start earning a profit. To choose the project which corresponds to their expectations, shareholders use a method named "capital budgeting". This method is defined by criteria. These criteria could be very different depending on what the shareholders' expectations are. Do they expect short term return on investment or is their plan focused on a long-term basis? The criteria could thus be diverse and would have to be specifically defined. The capital budgeting method takes into account all the possible expenditures. These include the cash outflow as investments in property, plant, equipment, research and development, and advertising campaigning, which are part of the strategy and help to have future inflow. A number of methods are used in capital budgeting.

Extraits

[...] Working Capital Ratio (Inventory + Receivables - Payables)/Sales as % Sales A high percentage means that working capital needs are highly related to your sales. Other working capital measures include the following: Bad debts expressed as a percentage of sales. Cost of bank loans, lines of credit, invoice discounting etc. Debtor concentration - degree of dependency on a limited number of customers. Once ratios have been established for your business, it is important to track them over time and to compare them with ratios for other comparable businesses or industry sectors. [...]

[...] The better credit terms you negotiate, the more cash is available in your working capital. The best strategy to implement for a company is to manage good relationship with its supplier to have better agreements and better services. To manage delays which are not agreed by your suppliers gives a bad reputation to your company and won't help in the company's future businesses. The best working capital situation regarding cash flow availability is to negotiate long term credit with supplier and to make the customer pay as quickly as possible. [...]

[...] Track and pursue late payers. Get external help if the company's efforts fail. Not to feel guilty asking for money . it's the company's and it is entitled to it. Make that call now. And keep asking until the company gets some satisfaction. In difficult circumstances, the company takes what it can now and agrees terms for the remainder. It lessens the problem. When asking for the company's money, the manager has to be hard on the issue - but soft on the person. [...]

[...] Identical projects means that there is an assumption of zero inflation; a real interest rate rather than a nominal interest rate is commonly used in the calculations Working Capital Cycle The working capital cycle is defined by the moving flow of capital: into, around and out of the business. The goal of all managers is to keep the capital flowing and to use the cashflow to generate profits. If a business is operating profitably, it should generate cash surpluses. If it's not the case, the business will run out of cash and collapse. The need of cash for the working capital and investment increases as far as the business is growing. [...]

[...] How widely available are raw materials, components etc.? How long does it take for delivery by suppliers? Can you remove slow movers from your product range without compromising best sellers? To implement a very efficient inventory management, managers have to review the effectiveness of existing purchasing and inventory systems; know the stock turn for all major items of inventory; apply tight controls to the significant few items and simplify controls for the trivial many; they have to sell off outdated or slow moving merchandise because it gets more difficult to sell the longer the company keeps it; they have to consider having part of the company's products outsourced to another manufacturer rather than make them itself; review the company's security procedures to ensure that no stock is stolen. [...]